IMF Staff Concludes Discussions for the 2012 Article IV Consultation and First Review under the PLL Arrangement with Morocco

Press Release No. 12/489
December 17, 2012

A staff team from the International Monetary Fund (IMF) led by Jean-François Dauphin visited Morocco December 5-18, 2012 to conduct with the country authorities the 2012 IMF Article IV Consultation and the First Review under the Two-Year Precautionary and Liquidity Line (PLL). The Executive Board of the IMF approved a 24-month arrangement under the PLL in an amount equivalent to SDR 4.1 billion (about US$6.2 billion, 700 percent of quota) in August 2012. During its stay, the mission also met with representatives of the private sector and civil society.

At the end of the visit, Mr. Dauphin issued the following statement:

“Morocco’s sound economic fundamentals and overall strong record of policy implementation have contributed, over the years, to a solid macroeconomic performance. This record helped the country qualify last August for a PLL arrangement, which aims to provide insurance against external shocks. The PLL also contributed to strengthen market confidence, as reflected by the lowering of CDS spreads in August. Staff’s assessment is that the authorities’ program is on track.

“More recently, Morocco’s solid performance has been challenged by the deterioration of the economic situation in Europe, high oil and food prices and, in 2012, a lower than average agriculture production. GDP growth is expected to slow to about 3 percent in 2012, although the non-agriculture growth is expected to remain robust at 4.5 percent. The current account deficit is expected to exceed 8 percent of GDP, even though international reserves have stabilized at around 4 months of imports. The successful sovereign bond issuance in December in the amount of US$1.5 billion—of which a third has a 30-year maturity—has confirmed market confidence. The fiscal deficit should decline to about 6 percent of GDP due in part to the adjustment in the prices of subsidized products in June. Inflation is projected to remain low at 1.3 percent in 2012, despite these price increases. Unemployment is stable around 9 percent, and remains especially high among the youth.

“External pressures are expected to continue and an additional deterioration of the international environment cannot be excluded. In this context, the authorities’ program supported by the PLL, which builds on structural measures to increase competitiveness, potential growth and employment, fiscal consolidation, and prudent monetary and financial policies, remains appropriate. However, implementing the needed reforms has become increasingly urgent if Morocco is to preserve its performance in the face of a challenging external environment.

“Morocco has made substantial progress in strengthening growth and reducing poverty over the past decade. But despite such progress, much remains to be done to reduce unemployment, in particular among the youth, and further improve social indicators such as the literacy rate and equal access to basic infrastructure, health services and education. In this context, structural measures to promote higher and more inclusive growth, through product and labor markets reforms, investment in human and physical capital, and improvement of the business climate are needed.

“Preserving fiscal sustainability remains a priority. The fiscal stance envisaged in the draft 2013 budget law is appropriate, but ensuring medium-term sustainability will hinge on the delivery of critical structural fiscal reforms which will also create the fiscal space for improved social protection and higher investment in human capital and infrastructure. In this regard, the reform of the subsidy system is crucial and urgent, as the current system is a drain on the budget and an ineffective tool to support the population in need. Similarly, a reform of the pension system is also urgently needed to ensure its viability and preserve medium-and long-term fiscal sustainability.

“In the context of a difficult external environment, improving competitiveness is a necessity. To fully reap the benefit of the authorities’ efforts to increase export market and product diversification and attract further foreign direct investment, structural reforms to improve the business climate and investment in education and training are necessary. Looking ahead, a more flexible exchange rate regime would strengthen the contribution of structural reforms to greater competitiveness and absorption of external shocks.

“The banking sector has proven resilient to the global crisis and remains sound overall. We support Bank Al-Maghrib’s efforts to continue to strengthen banking regulation and supervision, including through gradual adherence to Basel III standards. In addition, continuing efforts to foster deeper financial access, especially in rural areas, and strengthen intermediation, would help widen access to credit, particularly for small and medium enterprises, and contribute to higher and more inclusive growth.

“The mission would like to thank the Moroccan authorities and all other interlocutors it had the opportunity to meet for their excellent cooperation and fruitful discussions.”